Block Reward

A ‘block reward’ is a payment made automatically by a digital currency network such as Bitcoin as compensation for users who help to maintain the network by participating in the process of forming a distributed consensus. The users who participate in this process in the hope of earning a block reward are called ‘miners’ in a Proof of Work cryptocurrency and usually either ‘stakers’ or ‘minters’ in a Proof of Stake cryptocurrency.

The coins used to make these payments may come from transaction fees paid by other users, or they may come from newly generated coins created for this purpose, which then increase the total supply of coins.

In a Proof of Work system such as Bitcoin, the block reward is paid to the miner who successfully hashes a transaction block. Mining involves performing many hashing calculations in order to find a hash which fits the requirements laid down by the network for a given block. These requirements depend on the specifications of the algorithm being used, such as the ‘difficulty’.

In many cryptocurrencies the block reward is gradually reduced over time, often by halving it over fixed periods. This leads to a high level of inflation when the network is first launched, gradually reducing until the entire monetary supply has been issued.